Challenging times for the global auto industry

Submitted by Antonio Bolaños Álvarez on 08/03/2020

“Coronavirus Piles More Pressure on the Struggling Car Industry.” Over the last month, global news outlets have been spreading dire scenarios, such as the one above, on a non-stop basis. Unfortunately, this year 2020 is predicted to be the most difficult one for automobile manufacturers since 2009 as the epidemic hits auto sales. As set forth in the article “Coronavirus Piles More Pressure on the Struggling Car Industry” by Stephen Wilmot, China, where the epidemic originated, has seen by far the biggest impact because vehicle sales were down an extraordinary 80% in February 2020 compared with the same month of 2019. The influence of said virus has been quite negative because China is the biggest car market in the world. In fact, in Wuhan, where the outbreak started, there are several auto plants located including General Motors, Honda, Nissan, Peugeot Group and Renault.

In 2019, Hubei Province, of which Wuhan is the capital, was the fourth-largest car producer in China. In addition to coronavirus, there are also other challenges faced by this fragile industry. Sales are being affected as well by the economic slowdown, escalating trade tensions and dramatic regulatory changes due to the climate crisis. Even before the development of coronavirus the Chinese market was already presenting a falling demand due to trade tensions between Washington and Beijing. The so called trade war has severely impacted the performance of carmakers as a consequence on various tariffs that have been imposed.The consequenceshave been savage competition, more restrictions related to air pollution and traffic congestion, and the emergence of the used car market.

On top of this, the automotive industry has to take into account the general trend against individual car ownership. Many peoplewholive in big cities rent cars for short periods of time just when they need them. Therefore, consumers are purchasingfewer cars and this trend is likely to grow more important in the coming years so the industry must find ways of staying profitable in spite of it..Another challenge is the emergence of the internet of things and artificial intelligence in vehicles. If cars can drive and interact with each other without human participation the way people travelwill completely change in the short-term. Furthermore, European regulations regarding CO2 emission standards to fight global warming have dramatically increased the costs to produce cars.

If manufacturers do not comply with emissions limitsfrom 2021 onwards, they will be sanctioned with expensive fines. In order to combat climate change and reduce emissions the industry is also focusing on increasing the sale of electric cars. Nevertheless, the demand for this type of vehicles is still considerably low. Hence, carmakers cannot rely on these sales to make satisfactory profits. According to Dr Jonathan Owens, supply chain and logistics expert at the University of Salford Business School, one issue is the lack of charging infrastructure on roads in Europe and the US. Therefore, consumers tend to choose the most practical alternative and prefer not to complicate their lives by purchasing vehicles which are difficult to charge.

Besides, despite the fact that there are cheap electrical cars nowadays on themarket, there is still a general perception that this kind of cars are quite expensive. Although electric cars do not issue polluting substances, their footprint can also harm the environment in case that the millions of used lithium-ion batteries that power these vehicles are not manipulated appropriately. Current levels of lithium collection in the world are very low; moreover, the volatile market price of lithium and the high cost of recycling relative to primary production have contributed to the absence of lithium recycling. If discarded battery packs end up in landfills, there are high chances that they go through a chemical reaction in the battery that can cause it to heat up, potentially to the point of burning or exploding. According to the paper “Recycling lithium-ion batteries from electric vehicles,” by Gavin Harper and published in the journal Nature on November 6th, 2019, “a number of improvements could make electric-vehicle LIB recycling processes economically more efficient, such as better sorting technologies, a method for separating electrode materials, greater process flexibility, design for recycling, and greater manufacturer standardization of Antonio Bolaños Álvarez batteries”.

The foregoing ways of dealing with batteries from electric cars include, but are not limited to; costs reductions, higher value of recovered materials and a lower risk of harm to human workers. On a different note, at the beginning of this new decade, not everything looks negative. Auto shows are going to be displaying a lot of vehicles that are environmentally friendlier, either all-electric, hybrids or with internal combustion engines with new designs for better efficiency and lower emissions. The transition to electric has been introduced in the car racing world too because there is an e-Formula 1 circuit now. Actually all Formula 1 cars are now hybrids for performance reasons. In my opinion the auto industry is very cyclical and is currently experiencing a downturn cycle in terms of sales; however, there also seems always to be some bust periods in the industries that strengthen them after certain adjustments.

Nowadays, there are definitely serious challenges that have to be faced by the stakeholders of the car industry, but this situation does not mean that the whole system will collapse. In spite of the existence of alternative means of transport such as trains and bicycles, most people still prefer the comfort of driving a car in order to reach their destination faster and in a more direct way. Additionally, there is a big number of individuals who are quite passionate about vehicles and will probably remain loyal to their favorite brands. That is the case in Costa Rica where I come from. There are various fan clubs of classic cars, engine modified vehicles and luxurious cars such as the Porsche Club. Regarding this particular group, its members gather on a monthly basis and organize different activities involving these astonishing exclusive cars.

In short, I believe that the car industry will recover its economic growth and benefit many people whose main source of income derives from this crucial economic activity. Companies such as A-1 Auto Transport that are fully committed to providing their customers with the highest quality automobile shipping services can see the challenges that have been explained in this essay as an opportunity to consolidate themselves in the market. The key is to thoroughly analyze the needs of their clients in connection with the disruptive transformations that the car industry is living at the moment.

Submitted by Antonio Bolaños Álvarez on 08/03/2020